Taxes in Maryland: Features and Advantages

Main Taxes in the State of Maryland

Income Tax:

Maryland applies a progressive state income tax ranging from 2% to 5.75% depending on income level. A key feature of Maryland is the additional local income tax levied by counties and cities. This ranges from 2.25% to 3.3%, making the combined personal income tax rate one of the highest in the U.S. — up to 8.95%.

All major sources of income are taxable: wages, business income, rental income, and dividends.

Sales Tax:

The base sales tax rate in Maryland is 6%, and unlike other states, local governments cannot add surcharges. The tax applies to most goods and certain services (including short-term rentals, digital goods, software, repair services, etc.).

Property Tax:

Property tax is levied at both the state and county levels. The state base rate is 0.112%, but the main tax is set at the county level, with the average effective rate around 1.04% of market value. In densely populated areas with active infrastructure programs (such as Montgomery and Prince George’s counties), rates may be higher.

Programs such as the Homestead Tax Credit and exemptions for seniors, veterans, disabled individuals, and low-income families are available.

Business Taxes:

For C corporations, Maryland levies a corporate income tax at a flat rate of 8.25% on taxable profits.

All business entities must file annual reports (Annual Report / Personal Property Return) by April 15 each year.

Excise Taxes:

Maryland levies excise taxes on alcohol, gasoline, tobacco, car rentals, and short-term lodging. The state also imposes taxes on telecommunications and digital services, including the Digital Advertising Tax — a special tax on online advertising revenues (for companies with global income exceeding $100 million).

Favorable Tax Conditions in Maryland

Despite high personal and corporate tax rates, Maryland offers a well-developed system of tax credits and incentives, including programs encouraging innovation, hiring, investment in economic development zones, and small business support.

For business owners, a key advantage is the absence of a franchise tax and moderate sales tax rates without local surcharges, simplifying calculations.

Taxes in Maryland Compared to Other States

Maryland has one of the highest combined personal income tax rates, largely due to the local component.

However, sales tax here is lower than in most other high-tax states (such as California or Illinois) and does not vary by region.

The corporate income tax rate is higher than in the Carolinas, Missouri, or Arizona, but lower than in New Jersey or Pennsylvania. Maryland does not levy a separate franchise tax, but requires property returns and annual fees.

The state also levies a business tangible property tax (tangible personal property) — companies must file a Property Return listing the value of equipment, furniture, machinery, and other assets. This creates additional reporting requirements, especially for retail, manufacturing, and office-based businesses.